If your small business has a substantial amount of debt, bankruptcy can help you restructure your debts and get a fresh financial start. It may give you an opportunity to save your business, wipe out your personal liability for business debts, or liquidate the company. Depending on what you wish to ultimately achieve, you can either file a small business bankruptcy, a personal bankruptcy or both.
Am I Responsible for Business Debt?
You liability for business debt is determined by the structure of your organization. You are personally liable for the obligations of your company, if you are a sole proprietor or a general partner of a partnership. If he business is unable to generate sufficient income to honor its financial obligations, creditors may be able to take your personal assets to satisfy them. If your role within the business is a limited partner of if the business is a limited liability company (LLC), you are not responsible for business debt in your personal capacity. Creditors may only pursue business assets. However, if you co-signed or personally guaranteed the debt, you may still be on the hook.
What Are My Small Business Bankruptcy Options?
Chapter 7, 11, and 13 bankruptcies each have certain advantages and disadvantages. Which one is the right debt relief strategy for you depends on the debt you owe and the structure of your organization. Our experienced debt relief attorneys explore each option that is best for you and your business.
Small Business Bankruptcy: Chapter 7
Both individuals and business entities may seek relief by filing a Chapter 7 bankruptcy.
When the case is filed, a bankruptcy trustee sells its assets and pays its creditors. It is usually an attractive option for small business owners who wish to close their business and do not want to deal with selling assets and negotiating with creditors. However, keep in mind that a Chapter 7 business bankruptcy does not eliminate your personal obligations on any business debts.
Personal Chapter 7 Bankruptcy
Your business cannot file Chapter 7 bankruptcy on its own if you are a sole proprietor. A sole proprietorship is not considered to be a separate legal entity from its owner, all business assets and debts are also debts of the business owner. As such, you must file a personal bankruptcy to eliminate small business debts. The advantage of this is you can get rid of both personal and business debts while using exemptions to safeguard business assets. Consequently, you may be able to continue operating the business even after bankruptcy matter has been concluded.
Furthermore, if you were liable for the debts of your partnership, corporation, or LLC, a personal Chapter 7 can vacate your personal liability for the small business debts. As a result, many small business owners who file a Chapter 7 business bankruptcy also file prefer to file a personal bankruptcy as well.
Perhaps the most important decision to make when considering small business bankruptcy is that if it is in fact the right choice to remedy both your finances and the finances of your business. Our experienced debt relief lawyers will provide a comprehensive analysis of your financial circumstances and will recommend a strategy for you. If filing a small business bankruptcy is not the best action plan for you, we assist you with: